WEEKLY RECAP
- The US and China agreed to cut most tariffs to 10% for 90 days starting May 14, easing trade tensions.
- This deal reverses the peak tariff rates from April 2025, marking a major de-escalation.
- Some tariffs remain, including US duties on fentanyl-related imports and sector-specific tariffs.
- Both sides committed to ongoing trade talks to work toward a longer-term agreement.
MAJOR MARKETS
Name
Dow Jones
S&P 500
Nasdaq
Nikkei 225
HSI
SHI
Last Close
42,654.74
5,958.38
19,211.10
37,462.73
23,345.00
3,367.00
7D%
3.29%
4.69%
6.67%
-0.48%
2.05%
0.74%
WEEKLY AHEAD
- May 19, 2025, China National Bureau of Statistics, Retail Sales YoY (April)
- May 19, 2025, China National Bureau of Statistics, Industrial Production YoY (April)
- May 19, 2025, China National Bureau of Statistics, Fixed Asset Investment (YTD) YoY (April)
- May 22, 2025, U.S. Bureau of Labor Statistics, Initial Jobless Claims
- May 22, 2025, U.S. Census Bureau, Existing Home Sales
- May 23, 2025, U.S. Census Bureau, New Home Sales
THOUGHTS OF THE WEEK
Steven Bessent, the U.S. Treasury Secretary under the Trump administration, has emerged as the pivotal force shaping America’s economic policy landscape. A former hedge fund strategist and George Soros protégé, Bessent’s pragmatic, risk-averse approach contrasts sharply with the ideological rigidity of Trump’s MAGA loyalists. His recent consolidation of power within the White House signals a shift toward market-stabilizing policies, balancing protectionist trade agendas with fiscal discipline. This report analyzes Bessent’s influence on U.S. economic strategy, its implications for equities, and risks to monitor.
Background Snapshot
Born in 1962 to a bankrupt real estate agent in South Carolina, Bessent’s early financial struggles fueled his macroeconomic focus. A Yale graduate, he pivoted from journalism to Wall Street via a Jim Rogers internship. At George Soros’ Quantum Fund, he co-masterminded the 1992 GBP short, exploiting UK-German economic divergences to net $1B.
After 24 years at Quantum, he founded macro hedge fund K Square (2015), targeting geopolitical and monetary shifts. A fiscal hawk, he warned of U.S. debt risks under Biden, prompting Trump to appoint him Treasury Secretary in 2024.
Policy Framework: The “Bessent’s Principles"
Bessent’s economic philosophy hinges on three pillars: de-risking strategic industries, preserving dollar hegemony, and curbing fiscal excess. Unlike traditional free-market conservatives, he advocates selective tariffs to re-shore critical supply chains (e.g., semiconductors, pharmaceuticals) while avoiding full-scale trade decoupling. His “333 Plan” (3% GDP growth, 3% deficit-to-GDP ratio, 3M bpd oil output) mirrors Reagan-era supply-side reforms but adapts to modern geopolitical realities.
Notably, Bessent views tariffs not as punitive tools but as negotiating leverage to recalibrate trade imbalances. By suspending Trump’s April 2nd blanket tariffs and redirecting focus to sector-specific negotiations (e.g., Chinese electronics, EVs), he has temporarily eased market panic. This aligns with his Wall Street-honed risk management: asymmetric bets where policy missteps are minimized.
Market Implications: Stabilization vs. Structural Risks
- Equities Tailwind: Bessent’s ascendancy has injected predictability into Trump’s volatile policymaking. The S&P 500’s 20% rally post-tariff pause reflects investor relief at his restrained approach. Sectors tied to reshoring (industrial automation, defense contractors) and energy (U.S. shale) stand to benefit from his “energy dominance” agenda.
- Debt Market Caution: Bessent’s fixation on fiscal sustainability—particularly curbing Biden-era deficits—could pressure long-term Treasury yields. His self-described role as “America’s debt salesman” implies aggressive liability management, including potential buybacks or maturity extensions.
- Dollar Dynamics: A staunch defender of dollar supremacy, Bessent will likely resist competitive devaluation, favoring gradual Fed tightening. This strengthens the greenback but pressures EM carry trades and export-driven economies.
China Relations: Strategic Relaxation of Tensions
- Political Fragility: Bessent’s influence hinges on Trump’s mercurial trust. MAGA hardliners (e.g., Navarro, Lighthizer) remain latent threats, advocating harsher decoupling.
- Debt Ceiling Showdowns: Bessent’s deficit reduction targets (3% of GDP) require politically toxic spending cuts. Stalemates could revive 2011-style downgrade risks.
- Energy Price Volatility: The “3M bpd oil” target relies on accelerated shale permits and pipeline approvals. Regulatory pushback or midterm power shifts could derail progress.
Risks to Monitor
Bessent’s China strategy blends economic realism with ideological skepticism. While critical of Beijing’s “overproduction/underconsumption” model, he privately acknowledges interdependence. His negotiations aim to:
- Secure concessions on U.S. tech access and IP protections.
- Incentivize Chinese domestic consumption to reduce reliance on U.S. markets.
- Avoid triggering a full-scale trade war that destabilizes Treasuries.
Investors should expect incremental deals (e.g., tariff exemptions for Apple, Boeing) rather than sweeping agreements.
Conclusion: The Bessent Premium
Bessent represents a rare convergence of Wall Street acumen and political pragmatism. His policies prioritize market stability over ideological purity, creating a “Bessent premium” for risk assets. However, investors must stay vigilant to his political vulnerabilities and the sustainability of U.S. debt containment. For Q3, we recommend overweighting U.S. industrials, energy infrastructure, and defensive tech, while hedging dollar strength via EUR/JPY crosses.
DISCLAIMER
Chart of The Week: Sources: Bloomberg, Coindesk, Cointelegraph, Forbes, Rados.io, Linux Research
Market Cap & Trading Vol.: Sources: Coinmarketcap, Linux Research
The horizontal axis represents the week number in 2018. For instance, W21 indicates the twenty first week in 2018. The primary vertical axis represents total market capitalization; and the secondary vertical axis represents total trading volume.
Thought of The Week: Sources: AON, Bloomberg, Blockchain.com, CCN, Coindesk, Cointelegraph, Ethereum World News, Gemini, Insurance Journal, Los Angeles & San Francisco Daily Journal, Linux Research
Week Ahead: Sources: FxStreet.com, Linux Research
Weekly Recap: Sources: FxStreet.com, Linux Research
Past performance does not guarantee future results.
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any cryptocurrencies. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
©Linux Group, October 2024.